Europe's Equities Catch-Down To Credit

Tyler Durden's picture

European equity indices are plunged today - extending the losses from the US yesterday - with Spain and Italy underperforming. Spain's IBEX is now -1.4% from pre-EU Summit levels though the rest are all green still (with Italy's MIB lowest of the rest at +1.5%). However, it seems that broad European stocks are finally catching-down to the dismal weakness in European credit (both financials and corporates) since the EU Summit. Europe's sovereign bond spreads all leaked wider on the day (be careful with yields since the benchmark 'safe havens' are so bid right now thanks to the flood of deposits into the front-end of German, Swiss, Dutch, and Austrian repo-able instruments). Spain and Italy remain wider than pre-EU-Summit levels (marginally) - though today saw the CDS-cash basis (as we noted in the pre-European open was likely) compress on these as Spain's 5Y CDS tests 575bps again. EURUSD broke 1.22 - new two-year lows - and is closing the Europe session below that level but the EUR crosses are all heading towards record lows (interestingly watching EURJPY as chatter is a rotation from JPY to EUR as a funding currency). German 2Y joined Swiss 2Y in the NIRP world as we note that the Swiss curve us now negative out to 5Y once again.

European equity indices remain green post EU Summit (except Spain) but are rolling over quickly...

as they play catch-down to European credit markets...

and just like financial credit, Europe's sovereigns are back at unch from pre-EU-Summit levels...

European Senior-Sub spreads continue to decompress...

and US VIX continues to converge to its empirical link to Europe's VIX (as we suggested)...

 

Charts: Bloomberg